Question

Show All Your Works How Do You Solve It: Calculate Sales mix and Contribution margin for 256GB in Requirement 10 GigaCo Manufacturing manufactures 256GB SD cards (memory cards for mobile phones, digital cameras, and other devices). Price and cost data for a relevant range extending to 200,000 units per month are as follows: i Requirements - X Data Table - X 20.00 7.40 1. What is the company's contribution margin per unit? Contribution margin percentage? Total contribution margin? 2. What would the company's monthly operating income be if the company sold 150,000 units? 3. What would the company's monthly operating income be if the company had sales of $4,500,000? 4. What is the breakeven point in units? In sales dollars? 5. How many units would the company have to sell to earn a target monthly profit of $260,000? 6. Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by 10%, and fixed costs will increase by $22,500 per month. If these costs increase, how many units will the company have to sell each month to break even? 7. Return to the original data for this question and the rest of the questions What is the company's current operating leverage factor (round to two decimals)? 8. If sales volume increases by 8%, by what percentage will operating income increase? 9. What is the company's current margin of safety in sales dollars? What is its margin of safety as a percentage of sales? 10. Say the company adds a second size of SD card (512GB in addition to 256GB). A 512GB SD card will sell for $45 and have variable cost per unit of $20 per unit. The expected sales mix is three of the 256GB SD cards for every one of the 512GB SD cards Given this sales mix, how many of each type of SD card will the company need to sell to reach its target monthly profit of $260,000? Is this volume higher or lower than previously needed (in Question 5) to achieve the same target profit? Why? Sales price per unit: (current monthly sales volume is 120,000 units)....$ Variable costs per unit: Direct materials ............$ Direct labor .. ..... .. .............$ Variable manufacturing overhead .............................. $ Variable selling and administrative expenses .........$ Monthly fixed expenses: Fixed manufacturing overhead ............. $ Fixed selling and administrative expenses .......... $ 5.00 2.20 1.40 191,400 276,600 Print Done Requirement 10. Say the company adds a second size of SD card (512GB in addition to 256GB). A 512GB SD card will sell for $45 and have variable cost per unit of $20 per unit. The expected sales mois three of the 256GB SD cards for every one of the 512GB SD cards. Given this sales mix, how many of each type of SD card will the company need to sell to reach its target monthly profit of $260,000? Is this volume higher or lower than previously needed (in Question 5) to achieve the same target profit? Why? Begin by computing the weighted average contribution margin per unit. (Round all amounts to the nearest cent, $XXX) 256 GB 512 GB Total Sales price per unit $ 20.00 $ 16.00 45.00 20.00 Less: Variable cost per unit Contribution margin per unit $ 4.00 $ 25.00 Sales mix Contribution margin 25.00 Weighted average contribution margin per unit

Answer 1

Answer is given below with working notes for all the questions

Contribution margin per unit Contribution margin % Total Contribution margin $4.00 20% $480,000 Selling price Variable cost Contribution margin per unit Contribution margin % (Contribution/Sales) *100 20% Total contribution margin $480,000 $7.40 Total variable cost per unit Direct material Direct Labor Variable manufacturing overhead Variable selling and administrative Total Variable cost per unit $5.00 $2.20 $1.40 $16.00 monthly operating income if 150,000 units sold $132,000 Sales Variable cost Contribution Fixed cost Operating Income $3,000,000 $2,400,000 80% of sales $600,000 $468,000 $132,000 monthly operating income if sales of $4,500,000 $432,000 Sales Variable cost Contribution Fixed cost Operating Income $4,500,000 $3,600,000 80% of sales $900,000 $468,000 $432,000 Break even point in units Break even point in sales dollar 117,000 $2,340,000 Units Break even point in units Fixed cost Contribution margin per unit $468,000 $4.00 117,000 Break even point in dollars Fixed cost Contribution margin % $468,000 $2,340,000 5 Units to be sold is 182,000 Fixed cost monthly profit Total Target $468,000 $260,000 $728,000 Fixed cost Contribution margin per unit Units 182,000 $728,000 $4.00 1 6 Monthly units to sell to Break even | 140,143 Fixed cost Contribution margin per unit | 549050 10,143 $490,500 140,143 $3.507 Revised Fixed cost - $468,000+ $22,500 = $490,500 Selling price Existing variable cost Increasing labor cost Revised Contribution per unit $20.00 $16.00 $0.50 10% of $5 $3.50 7 Operating Leverage 40 Contribution Operating Income $480,000 $12,000 Sales Variable cost Contribution Fixed cost Net Operating Income $2,400,000 $1,920,000 $480,000 $468,000 $12,000 8 Operating income will increase by 320% 8% A Sales growth Operating leverage Increase in Operating Income 320% AXB 9 Margin of Safety in sales dollars Margin of Safety % of Sales $60,000 2.50% $60,000 Margin of Safety in dollars (Total Sales- Break even sales) Total Sales Break even sales $2,400,000 $2,340,000 2.50% Margin of Safety % of Sales (MOS/Total Sales) 512GB Total 256 GB $20 $16 Sales price pre unit Variable cost per unit Contribution margin per unit $45 $20 Sales mix Contribution margin $121 Weighted average contribution margin $9.25 Units Fixed cost Weighted Contribution margin per unit $728,000 $9.25 78,703 | 256 GB 512GB 512GB Sales mix Units to sell 59,027 19,676 78,703 Units to sell in Q.NO. 5 is 182,000 This volume to sell is lower because 512 GB SD Card is having higher contribution margin per unit and hence Sales units needed to achieve Operating Profit of $260,000 per month is lower Sales units is divided based on sales mix %